Hirequest reports income from continuing operations of $3.8 million, or $0.28 per share, for fourth quarter of 2019
Goose creek, s.c.--(business wire)--hirequest, inc. (nasdaq: hqi), a national provider of back-office and operational support for franchised operators of on-demand and temporary staffing service providers, today reported financial results for the fourth quarter and year ended december 31, 2019. “the $3.8 million in income from continuing operations on total revenue of $5.9 million in the fourth quarter reflects the true earnings and cash generating potential of our business as we turn the page on our transition to a 100% franchise business model,” commented rick hermanns, hirequest’s president and chief executive officer. “on the basis of these results, we believe that our franchise model is self-sustaining and provides us with incremental cash flows to further strengthen our balance sheet. with more than $4 million in cash reserves, zero debt and a cash-flow generative business model, we are well-capitalized and well-positioned to selectively pursue opportunities that may arise in what may become an increasingly volatile economy. “as we enter 2020, our transition is complete, our company has an operating infrastructure that is appropriately aligned to support our existing franchisees and their respective businesses,” continued mr. hermanns. “we are confident in the long-term prospects for the company given our proven and effective business model, despite near-term challenges that we and our franchisees face as we navigate uncertainties related to the coronavirus pandemic and the resulting economic volatility.” fourth quarter 2019 financial summary franchise royalties increased 65.8% to $5.4 million compared to the quarter ended december 31, 2018. of this increase, 26.2% related to branches acquired in the merger and subsequently sold and converted to our franchise model. services revenue, which includes interest paid on aging accounts, increased 69.8% to $476,000 over the same period last year. of this increase, 1.2% was merger related. total revenue increased 66.1% to $5.9 million compared to $3.5 million in the prior year period. of this increase, 24.1% was merger related. income from continuing operations was $3.8 million, or $0.28 per diluted share, compared to $2.2 million, or $0.22 per diluted share, in the year-ago period. income from continuing operations included approximately $545,000 in expenses related to the merger. system-wide sales1 (a non-gaap operating performance metric) for the full-year 2019 increased 27.2% to $241.6 million compared to $190.0 million for the year ended december 31, 2018 in the third quarter of 2019, the company sold branches it had acquired from command center to existing and new franchisees. the sales took place in two tranches which were completed in july and september 2019. in addition, the company made the strategic decision to sell the assets of command center’s four california branches outside of its franchise system to an unaffiliated party. collectively, the assets the company sold in the september and california transactions are the “discontinued operations.” as such, the income arising from these branch assets has been classified as income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. additionally, the related assets and liabilities associated with the discontinued operations are classified as current assets of discontinued operations and current liabilities of discontinued operations in the consolidated balance sheets. unless otherwise noted, discussions herein relate to the company’s continuing operations. fourth quarter 2019 financial results franchise royalties in the fourth quarter of 2019 were $5.4 million, up 65.8% compared to $3.3 million in the year-ago quarter. of this increase, 26.2% was related to branches acquired in the merger and subsequently sold and converted to our franchise model. service revenue was $476,000, up 69.8% compared to $280,000 in the prior-year quarter. of this increase, 1.2% was related to branches acquired in the merger and subsequently sold and converted to our franchise model. the company’s total revenue is calculated by aggregating its revenue derived from franchise royalties and service revenue. franchise royalties are the royalties earned from franchisees primarily on the basis of their sales to customers. service revenue consists of interest charged to franchisees on overdue accounts and other miscellaneous revenue for optional services the company provides its franchisees. total revenue in the fourth quarter of 2019 was $5.9 million, an increase of 66.1%, or $2.4 million, compared to $3.5 million in the year-ago quarter. this increase is primarily due to the company’s merger with command center, inc., which was completed in the third quarter of 2019. selling, general and administrative (“sg&a”) expenses in the fourth quarter of 2019 were $3.1 million, compared to $1.3 million for the fourth quarter last year. the year-over-year increase is due, in part, to approximately $545,000 in merger-related expenses including pre-payment of leases, payment of employee severance, and rebranding expenses, as well as an increase in stock-based compensation expenses and professional and other fees associated with running a public company. income from operations before taxes in the fourth quarter of 2019 was $2.4 million, compared to $2.1 million in the fourth quarter last year. inclusive of the $545,000 in merger-related expenses, income from continuing operations in the fourth quarter of 2019 was $3.8 million, or $0.28 per diluted share, compared to $2.2 million, or $0.22 per diluted share, in the year-ago quarter. full-year 2019 financial results franchise royalties for the full-year 2019 were $14.7 million, up 30.0% compared to $11.3 million in the prior year. of this increase, 42.5% was related to branches acquired during the merger and converted to our franchise model. service revenue was $1.2 million, up 15.4% compared to $1.0 million in the prior year. 28.0% of this increase was related to branches acquired during the merger. total revenue for the full-year 2019 was $15.9 million, an increase of 28.8%, or $3.6 million, compared to $12.3 million in the prior year. 41.9% of this increase related to the acquisition, and subsequent conversion to franchises, of a significant number of offices through the company’s merger with command center, inc., which was completed in the third quarter of 2019. both royalty revenue and service revenue were higher as a result of the significant increase in the number of franchised offices. selling, general and administrative expenses for the full-year 2019 were $12.7 million compared to $5.3 million for the full-year 2018. approximately 70% of this increase was due to expenses related to the company’s merger and 30% was due in large part to an increase in stock-based compensation and increased legal and professional fees associated with the operation of a public company. the significant merger-related expenses include professional fees of approximately $1.8 million for investment bankers, attorneys and other professionals, $1.9 million severance payments and other non-recurring compensation items, $835,000 for reorganizational and rebranding expenses, and $566,000 in other non-recurring expenses. income from operations, inclusive of $6.1 million of merger-related expenses, for the full-year 2019 was $2.8 million, compared to $6.9 million for the full-year 2018. loss from continuing operations for the full-year 2019 was $506,000, or $(0.05) per diluted share, compared to income from continuing operations of $7.1 million, or $0.71 per diluted share, for the prior year. balance sheet and capital structure cash at december 31, 2019, was $4.2 million, compared to $1.3 million at december 31, 2018. total assets were $47.0 million at december 31, 2019. total liabilities were $15.7 million. conference call hirequest will hold a conference call to discuss its financial results. date: monday, march 30, 2020 time: 10 a.m. eastern time toll-free dial-in number: 1-877-705-6003 international dial-in number: 1-201-493-6725 conference id: 13701093 please call the conference telephone number 5-10 minutes prior to the start time. an operator will register your name and organization. the conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=138804 and via the investor relations section of hirequest’s website at www.hirequest.com. a replay of the conference call will be available after 1 p.m. eastern time on the same day and continuing through april 13, 2020. toll-free replay number: 1-844-512-2921 international replay number: 1-412-317-6671 replay id: 13701093 about hirequest hirequest, inc. provides back-office and operational support for hirequest direct and hirequest franchised branch locations across the united states. through its nationwide network of approximately 140 franchisee-owned offices in 32 states and the district of columbia, the company provides employment annually for approximately 67,000 field team members working for thousands of customers, primarily in the areas of construction, light industrial, manufacturing, hospitality, and event services. for more information, visit www.hirequest.com. ____________________________________ 1 refer to “supplemental operating metrics” section at the end of this press release for a definition and additional details regarding system-wide sales. important cautions regarding forward-looking statements this news release includes, and the company’s officers and other representatives may sometimes make or provide certain estimates and other forward-looking statements within the meaning of the safe harbor provisions of the u.s. private securities litigation reform act of 1995, section 27a of the securities act, and section 21e of the exchange act, including, among others, statements with respect to future revenue, franchise sales, system-wide sales, and the growth thereof; operating results; anticipated benefits of the merger with command center, inc., or the conversion to the franchise model; intended office openings; expectations of the effect on our financial condition of claims and litigation; strategies for customer retention and growth; strategies for risk management; and all other statements that are not purely historical and that may constitute statements of future expectations. forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar references to future periods. while the company believes these statements are accurate, forward-looking statements are not historical facts and are inherently uncertain. they are based only on the company’s current beliefs, expectations, and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. the company cannot assure you that these expectations will occur, and its actual results may be significantly different. therefore, you should not place undue reliance on these forward-looking statements. important factors that may cause actual results to differ materially from those contemplated in any forward-looking statements made by the company include the following: the level of demand and financial performance of the temporary staffing industry; the financial performance of the company’s franchisees; changes in customer demand; the effects of any global pandemic including the impact of the novel coronavirus disease ("covid-19"); the extent to which the company is successful in gaining new long-term relationships with customers or retaining existing ones, and the level of service failures that could lead customers to use competitors’ services; significant investigative or legal proceedings including, without limitation, those brought about by the existing regulatory environment or changes in the regulations governing the temporary staffing industry and those arising from the action or inaction of the company’s franchisees and temporary employees; strategic actions, including acquisitions and dispositions and the company’s success in integrating acquired businesses including, without limitation, successful integration following the merger with command center, inc.; disruptions to the company’s technology network including computer systems and software; natural events such as severe weather, fires, floods, and earthquakes, or man-made or other disruptions of the company’s operating systems; and the factors discussed in the “risk factors” section and elsewhere in the company’s most recent annual report on form 10-k. any forward-looking statement made by the company or its management in this news release is based only on information currently available to the company and speaks only as of the date on which it is made. the company and its management disclaim any obligation to update or revise any forward-looking statement, whether written or oral, that may be made from time to time, based on the occurrence of future events, the receipt of new information, or otherwise, except as required by law. $ 4,187,450 $ 1,291,317 28,201,279 20,725,170 3,419,458 - 188,560 - 822,938 - - 209,685 201,440 - 37,021,125 22,226,172 1,900,686 2,045,881 7,990,251 85,500 - 8,334 $ 46,912,062 $ 24,365,887 $ 253,845 $ 53,435 1,893,846 95,223 1,113,904 504,035 - 7,740,083 3,610,596 2,430,448 1,811,917 1,852,328 2,327,869 - 11,011,977 12,675,552 1,516,633 - 1,412,924 767,509 1,688,446 - 15,629,980 13,443,061 - - 13,518 9,940 27,584,610 6,938,953 3,683,954 3,973,933 31,282,082 10,922,826 $ 46,912,062 $ 24,365,887 $ 5,396,922 $ 3,255,016 $ 14,673,636 $ 11,287,149 475,748 280,150 1,202,824 1,042,479 5,872,670 3,535,166 15,876,460 12,329,628 3,131,312 1,339,504 12,692,297 5,325,000 324,502 66,252 400,132 92,608 2,416,856 2,129,410 2,784,031 6,912,020 (616 ) 41,112 751,077 189,796 (37,748 ) (5,000 ) (559,585 ) (19,697 ) 2,378,492 2,165,522 2,975,523 7,082,119 (1,399,406 ) (13,277 ) 3,480,996 21,029 3,777,898 2,178,799 (505,473 ) 7,061,090 (315,067 ) 11,421 215,494 56,097 $ 3,462,831 $ 2,190,220 $ (289,979 ) $ 7,117,187 $ 0.28 $ 0.22 $ (0.05 ) $ 0.71 (0.02 ) 0.00 0.02 0.01 $ 0.26 $ 0.22 $ (0.03 ) $ 0.72 $ 0.28 $ 0.22 $ (0.05 ) $ 0.71 (0.02 ) 0.00 0.02 0.01 $ 0.26 $ 0.22 $ (0.03 ) $ 0.72 13,488,436 9,939,668 11,588,776 9,939,668 13,490,636 9,939,668 11,588,776 9,939,668 hirequest, inc. supplemental operating metrics 1 management sometimes refers to total sales generated by its franchisees as “franchise sales.” management also sometimes refers to locations that were owned and operated by the company, not by one of its franchisees, up through the time of their sale, the last of which closed on september 29, 2019 as "company-owned offices." sales at company-owned offices are reflected net of costs, expenses, and taxes associated with those sales on the company’s financial statements as “income from discontinued operations, net of tax.” the sum of franchise sales and sales of company-owned branches is referred to as “system-wide sales,” a non-gaap operating performance metric. system-wide sales include sales at all offices, whether owned and operated by the company or by its franchisees. while the company does not record franchise sales as revenue, management believes that information on system-wide sales is important to understanding the company’s financial performance because those sales are the basis on which the company calculates and records franchise royalty revenue, are directly related to interest charged on overdue accounts, which the company records under service revenue, and are indicative of the financial health of the franchisee base. december 31, 2019 december 31, 2018 franchise sales $ 227,691,668 $ 189,293,776 company-owned sales 13,932,769 722,849 system-wide sales $ 241,624,437 $ 190,016,625
